January 2011 Issue • Volume 39 • Issue 1

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For-Profit Schools and
Underserved Student Populations:
Expanding Access or Exploiting Aspirations?

Ashley Rondini, ASA Congressional Fellow*

Low-income, first-generation, students of color, and veteran and/or active duty military populations are overrepresented at for-profit and "career" colleges. For-profit education sector advocates contend that these schools provide access to higher education for underserved groups to an extent that competitive admissions processes at conventional universities do not, through their relatively open admissions practices, flexible academic structures, and self-paced curricula. However, because tuition rates at for-profit institutions are often higher than those at public and private non-profit colleges and universities, students who enroll in these schools receive federal student aid funding and take on student loans at particularly steep rates. In addition, the students to whom educational opportunities at for-profit and career colleges are most heavily marketed are also likely to be those with the least access to information and resources needed to make well-informed decisions regarding higher education and educational financing options.

The "Gainful Employment" Debate

Title IV of the Higher Education Act of 1965 stipulated that educational institutions and programs must demonstrate that they prepare students for "gainful employment in a recognized occupation" to be eligible for receipt of federal financial aid funding. Recently, the metric by which compliance with this requirement is assessed has become the subject of considerable political dispute.

Since the 2008 reauthorization of the Higher Education Act, the Department of Education (DOE) has worked to develop regulations that would measure institutional adherence to the gainful employment standard, using data on student outcome measures such as incomes, debt loads, completion/graduation rates, job placement, and loan repayment. While these standards would be applicable to all higher education institutions, the issue has sparked a particularly controversial debate in relation to their possible impact on for-profit schools. Data from the Government Accountability Office (GAO) and the DOE revealed stark disparities in student outcomes from for-profit educational institutions. For-profit education lobbyists contend that the proposed gainful employment regulations will negatively impact the underserved student populations that comprise most of their enrollment, by further limiting the educational options to which they have access. The Association of Private Sector Colleges and Universities has launched an advocacy campaign that includes a petition to Congress opposing the proposed gainful employment rules, framing the ramifications of increased regulations as an unfair targeting of "minorities and working-class communities." Within this framing, oversight is constructed as a threat to the capacity of these schools to provide opportunities to underserved populations.

Proponents of gainful employment regulations argue that a lack of oversight to this point has enabled "bad actors" within the for-profit sector to exploit students’ aspirations towards mobility by "cashing in" on their federal aid funding without providing them with an educational experience of commensurate value. Within this framing, the impediments to status quo operations of many for-profit schools posed by greater oversight will protect students who might otherwise be vulnerable to targeted exploitation through unscrupulous recruitment, enrollment, and student aid disbursement practices.

Increasing Scrutiny: A Legislative History

"Proponents of gainful employment regulations
argue that a lack of oversight to this point has
enabled "bad actors" within the for-profit sector to
exploit students’ aspirations towards mobility by
"cashing in" on their federal aid funding without
providing them with an educational experience
of commensurate value."

In August 2009, U.S. House Subcommittee on Higher Education, Lifelong Learning, and Competitiveness, chaired by Ruben Hinojosa (D-TX), convened a hearing in response to a GAO report titled "Proprietary Schools: Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student Aid." The report raised concerns regarding the extent to which the DOE’s policies and procedures for monitoring eligibility for federal financial aid effectively protected students at for-profit schools receiving funding under Title IV of the Higher Education Act of 2007-08.

In the aftermath of the House Subcommittee hearing, a group of Democratic lawmakers, including House Education and Labor chair George Miller (D-CA), Subcommittee on Higher Education, Lifelong Learning, and Competitiveness chair Ruben Hinojosa (D-TX), Congressman Tim Bishop (D-NY), Senate Committee on Health, Education, Labor, and Pensions (HELP) Chair Tom Harkin (D-IA), and Assistant Senate Majority Leader Dick Durbin (D-IL), issued a request to the GAO for a thorough assessment of the educational quality and revenue sources of for-profit institutions.

In addition, the Senate HELP Committee convened a hearing in June 2010 titled "Emerging Risk?: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education." Harkin raised concerns that the duty of for-profit institutions to maximize revenue for their shareholders could pose a conflict of interest to the goal of the federal student aid program to provide increased access to a quality higher education.

Following an undercover investigation of marketing, recruitment, and admissions practices at 15 for-profit colleges, the GAO released a report in August 2010 titled "For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices." Recruiters and admissions counselors at all of these schools had made deceptive or "otherwise questionable" statements regarding admissions, financial aid eligibility, estimated program expenses, and/or future employment prospects to undercover investigators.

In September 2010, a HELP Committee report, titled "The Return on the Federal Investment in For-Profit Education: Debt Without a Diploma," stated that more than half of the students at many for-profit schools withdraw prior to completion of their degree or certificate programs within two years of enrollment.

The (Booming) Business of Educating Underserved Populations

Despite recent economic downturns, the for-profit college sector has more than doubled its enrollment rates over the past decade, while also steadily expanding to overseas markets. According to the DOE, enrollment in U.S. higher education institutions increased overall by 31% between 1998 and 2008, while for-profit institutions increased their enrollment by 225%. (For more information on the growth of online education see December 2010 Footnotes article, p. 11 on online education.)

Because of the overrepresentation of low-income students, the majority of the revenue at for-profit schools is derived from need-based federal student aid programs. According to the DOE, for-profit schools currently receive an estimated 23 % of all Title IV funding, despite enrolling only 10% of all higher education students. According to Secretary of Education Arne Duncan:

"While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt that they cannot afford in exchange for degrees and certificates that they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit industry as a whole."

The sector received $4.3 billion in Pell grants and $19.6 in federal loans for 2008-09, amounting to an average of 77% of the total revenues at for-profit schools. In August 2010, the DOE released nationwide data on federal student loan repayment rates, which indicated that loan repayment rates are currently at 54% for public colleges, 56% at private non-profit colleges, and only 36% at private for-profit colleges. Likening the student aid advising practices of the sector to that of predatory mortgage lenders, the Education Trust recently labeled for-profit college recruitment efforts as a marketing of "subprime opportunity".

Vulnerability of Low-Income Students

Inequities in public secondary school quality often leave low-income, first-generation students at an academic disadvantage in comparison to their predominantly white peers from middle- and upper-class families with college-educated parents. In opposing the "gainful employment" measures, for-profit sector lobbyists argue that their operations will be unduly hindered on the basis of their efforts to serve these populations. However, the aspirations of underserved students to achieve educational mobility are not realized on the basis of admission alone. According to the Pell Institute for the Study of Opportunity in Education, college graduation rates for low-income first generation students have lagged behind enrollment rates in the past several decades.

When higher attrition and student loan default rates at for-profit schools are framed as an inevitable consequence of expanding access to underserved students, the argument must be understood in the context of the federal student aid dollars that have fueled the sector’s explosive growth. It stands to reason that institutions that disproportionately profit from the enrollment of student populations facing higher attrition risks should be particularly accountable for the effective provision of efforts to support academic persistence. Instead, average attrition rates for these students are actually higher at for-profit schools. The argument for oversight takes into account the broader implications for social mobility of persistence, completion, debt, and relative earning potential rates that contextualize students’ experiences of education beyond their initial enrollment. logosmall

*The views and analysis expressed in this article are those of the author’s and not necessarily those expressed by policymakers or the ASA.

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